Optometric Management Tip # 553 - Wednesday, October 10, 2012
Salary Creep and Pay Caps
In my consulting work, optometrists often share their concern with me that some employees have reached very high salary levels. The doctors want to know how to handle raise requests from these individuals, who are often excellent staff members they don't want to lose. Some doctors wonder if they should implement a salary cap for certain job positions that will establish the upper pay limit.
The term salary creep generally refers to an employee who has been with you for a long time and regular raises or bonuses have added up to a larger than normal compensation for a certain job position.
When I evaluate the actual wages being paid to optometric staff members when salary creep is the issue, I usually find that the situation is not that bad. I rarely find that an employee is being paid a wage that is completely beyond what I consider reasonable. In most cases, the salary creep is more of a worry about what might happen in the future rather than remorse over the current wage.
It is important to recognize the true value of a staff member who has been with your practice a long time. If the employee does excellent work, has a great attitude, is liked by patients and co-workers, and knows every aspect of your practice procedure, he or she is worth fairly high compensation. It is very hard to find a person that has all those qualities. An employee like that will generate a great deal of revenue for the practice.
I would never announce a range of wages or a pay cap for a certain job position. It would hurt morale for employees to think they could go no further in their career and I see no benefit in telling a person that. I don't think it would even be that useful because you will want to manage each employee individually and circumstances do change. Don't lock yourself in with your own policies. Leave them flexible. Some policies should not be too specific.
Compare wage amounts to other fields
When you wonder if an employee is being paid too much or if a possible raise makes sense, compare the compensation with other occupations. After all, wages are based on the job market and that is based on what other employers are paying for people with a specific skill set. In this case, let's assume we are evaluating a very smart, likeable, dependable employee with considerable skills as an optician or manager. Determine this person's total compensation with wages and bonuses averaged and express it as an annual salary prorated for a 40 hour week. A quick rule of thumb is to take the hourly wage, double it and add three zeros. For example, a person earning $26 per hour is about equal to a $52,000 per year salary.
When you consider a career for a bright person earning a living for his family that pays a salary of $52,000, what do you think? It is a reasonable salary level, but I think most people in the U.S. would not think of it as extremely high. It depends on the job, of course, but on the scale of all jobs, it may be middle to low.
This analysis helps me realize that the salaries paid by many optometric practices may not be so out of line after all.
So what can you do?
As you do reviews for higher earning employees in your practice, you should not feel forced to give a raise. You can let the highly paid staff coast along a little bit. You may tell them they are doing great but a raise is not in the budget at this time. You may give them a small raise to show that the practice likes their work but it is only 25 cents per hour. It is just a token, but maybe better than no raise. We never know how staff will react to a raise; they could be insulted or upset, but you have to cross that bridge when you get to it.
Most reasonable people know that the economy is in trouble and jobs are scarce right now. Even a 50 cent raise, which would seem pretty good to most staff, may only equal a cost of living increase. You do not need to tell the employee that it is just cost of living. Let them feel good about it. But you should realize that a cost of living raise is really not a raise at all. Your practice must find a way to also keep up with cost of living. Your practice should be increasing in profitability more than the cost of living each year.
If you feel like your wages and payroll costs are getting too high, it may be because your practice is not profitable enough. You may need to raise fees or see more patients or bring in a new service. If you applied your current payroll expense to a higher gross revenue number, the payroll percentage would be lower. You effectively could afford to retain and pay the best staff.
You might also consider a bonus program for these highly paid employees instead of a conventional raise. If this employee found a way to achieve a very high level practice goal, you may be very happy to pay more.
Annual employment reviews
One final point... I don't do annual staff reviews that are forced by the calendar. I know many human resource management books say you should (I earned a concentration in human resources with my MBA degree). Many smart people disagree with me on this and that's fine. But our practices are not large corporations where we can't keep track of our employees and how they are doing. I know exactly who is doing well in my practice and who is just so-so.
Reviews that are forced by the calendar based on the anniversary of employment always result in the employee expecting a raise. Even if you say the reviews are not related to raises, they always are. So when you do the review, you must either give a raise you did not want to give or you must tell an employee why they are not good enough to deserve a raise – which will usually demoralize them and change their attitude at work. So, you may want to slowly migrate away from giving forced annual written reviews and give more frequent feedback, like daily or weekly comments. I believe in giving feedback to employees so frequently that a raise is not even on the radar. And proactively give raises or bonuses when you see good work and keep up with it. You must pay well to keep good people.
Best wishes for continued success,
Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management